Embattled oil producers quietly eye rail option

On a clear day, the waters that roll into Prince Rupert's industrial port offer a clear view to open seas that stretch to the other side of the world. Only steps from those waters lie train tracks that connect this distant northern port with the heart of North America, including the oil sands.

Those tracks offer exporters a more direct connection to Asia than any other place in North America outside Alaska. It's an advantage of proximity that has already brought coal, grain and containers to these shores. Now, some believe Canada's energy industry should do the same, arguing that rail may have a clearer route to Pacific oil exports than Northern Gateway, the $6-billion Enbridge Inc. project that has been embroiled in controversy.

After all, trains elsewhere in North America are now moving hundreds of thousands of barrels a day, including to refineries on the West Coast. There is little reason crude from those same trains could not be loaded onto ships. Canadian rail lines have examined the idea; in the U.S., at least two Pacific terminals are developing plans to export oil brought west by rail.

Story continues below advertisement

"Pipelines can't touch the capacity of the railway," said Alf Nunweiler, a former B.C. northern affairs minister who spent 42 years working for CN. The CN rail line into Prince Rupert is 75 per cent empty, according to the local port authority. And it's already built, unlike a pipeline that would have to travel through northern British Columbia's challenging terrain.

Mr. Nunweiler used an argument from history, pointing to the role railroads played in developing the Canadian west, to make the case for moving oil by trains. "The railway is what was required then, and it is required now," he said.

From the earliest days of its "pipeline on rails," CN has discussed the possibility of Pacific exports; as recently as last year, a CN spokesman told the Vancouver Sun that the West Coast exports are "currently identified as an opportunity." In northern British Columbia, however, anger over Northern Gateway has made oil such a poisonous subject that few will now discuss it. In an e-mailed statement, spokesman Mark Hallman said "CN policy is not to engage in speculative discussions."

He added: "CN is not moving crude oil to Canada's west coast ports; there are no terminals in place at those ports to unload crude oil from rail cars to ocean vessels for export."

Environmental groups, however, have begun raising an alarm, accusing the Prince Rupert port of asking local residents what they might make of oil shipments. This week, as federal hearings into Gateway moved to Prince Rupert, Forest Ethics ran a full-page local newspaper ad warning of the risks oil shipments by rail might pose to wildlife. The port is not keen to discuss the possibility.

"We can't figure out what specifically [Forest Ethics] were referring to," said Don Krusel, chief executive officer of the Prince Rupert Port Authority. "We do not have a bitumen project."

In fact, "we're more concerned about the collateral damage around Enbridge right now than the market opportunity that might exist with rail," said Shaun Stevenson, vice-president of trade development and public affairs at the port. Each ship sailing into Prince Rupert right now contains heavy oil as fuel. The port is concerned Gateway-fuelled worries about oil on water could harm its base business.

Story continues below advertisement

Story continues below advertisement

Those concerns have not hampered other plans, however. Two liquid terminals at the Port of Grays Harbor in Washington state, 180 kilometres southwest of Seattle, are contemplating loading oil from trains onto barges or ships. Westway Terminals has already applied to export oil; doing so would only require construction of extra storage, said the port's executive director, Gary Nelson.

Oil from U.S. sources could only be shipped to other U.S. ports. But the terminal developers have also discussed bringing in Canadian oil, which could be shipped to international markets.

That is "one of the options that I know is being considered," Mr. Nelson said.

The idea of carrying oil to Canada's West Coast did not gain much traction several years ago, because industry thought Gateway was a "slam dunk," said Glen Perry, a rail advocate who worked alongside CN as it began shipping oil. He has subsequently watched the prospects for Gateway cloud amid environmental and first nations opposition.

The railroad, he said, is a viable alternative. By his math, heavy oil could be carried to Prince Rupert by rail at a cost comparable to a pipeline. And while an oil export terminal would need approval to move ahead, CN could ship oil to Prince Rupert on its tracks tomorrow, no permits required.

Nathan VanderKlippe is the Asia correspondent for The Globe and Mail. He was previously a print and television correspondent in Western Canada based in Calgary, Vancouver and Yellowknife, where he covered the energy industry, aboriginal issues and Canada’s north.He is the recipient of a National Magazine Award and a Best in Business award from the Society of American Business Editors and Writers. More

The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.